This invention relates to systems and methods whereby ad hoc insurance syndicates may be created, particularly ones that are attractive to small investors.
In the usual insurance transaction, a party wishing to protect himself against a risk makes a contract with an insurance underwriter, typically exchanging payments (premiums) for a promise (set forth in an insurance policy) to have the risk covered. Often an individual underwriter does not wish to bear the entire risk; the risk may be shared by forming a insurance syndicate. In an insurance syndicate, a group of individual investors each pledge to insure against a portion of the risk specified in one or more insurance policies, in return for a share of the premiums. The risk to the underwriter is thus distributed among the members of the syndicate; the risk assumed by an individual syndicate member is generally related to the share of the premiums that he receives (in effect, the right to a share of the premiums is representative of the stake in the syndicate owned by that member).
A well-known example of an insurance syndicate is Lloyd's of London, where individual investors (historically called "names") pledge their net worth against the liabilities of specific insurance policies in which they share a portion of the income from premiums and a portion of the risk. Generally, no other security is given by a "name" to offset the risk he assumes when entering a syndicate. Furthermore, in many instances there is no limit on the monetary amount of risk faced by an individual "name." If a loss covered by the insurance syndicate does occur, each "name" is individually responsible for a portion of the loss. Participation in Lloyd's syndicates is thus limited to a relatively few individuals or corporations, who are willing to accept the risks attendant with personal liability. Despite the limited participation and personal liability of "names," default on payment of losses by "names" is a recognized problem with insurance syndicates.
A stake in an insurance syndicate may be sold at an auction to other investors; in exchange for receiving the proceeds from the sale at such an auction, the "name" gives up his premium income while distributing his risk.
On the other hand, a large number of persons hold credit cards with unused credit lines. These unused credit lines potentially could be pledged in making an investment, which would enable the cardholder to realize a source of income from an otherwise untapped personal asset. Such a pledge could be secured against default by freezing a portion of the credit line.
The use of wide area network communications (particularly the Internet) can bring together a large number of people who have shared interests but are geographically scattered. In the case of investing, the Internet can bring together a large number of persons who individually have only a small amount of capital, but collectively control a large amount of capital and are in search of a suitable investment vehicle. The Internet thus has the benefit of aggregating what would otherwise have been unrealized investment demand. In addition, using the Internet makes a wide variety of transactions, including investment transactions, easy and convenient. Furthermore, with the advent of cryptographically secure network communications, an individual may with confidence use an online system to make investment transactions.
Despite these attractive possibilities, no system is known to applicants which utilizes the benefits of the Internet and the credit card system to fill needs in the insurance industry.
U.S. Pat. No. 5,025,138 to Cuervo ("Method and System for Providing Verifiable Credit Line Information") discloses a system whereby the cash surrender value of a life insurance policy is used as collateral for debit card holders. Securing the line of credit through the cash surrender value of the policy eliminates potential losses from default on credit obligations. This system, however, does not utilize the unused credit line of the card holder's account, and does not suggest syndication of the policy.
U.S. Pat. No. 4,839,804 to Roberts et al. ("Method and Apparatus for Insuring the Funding of a Future Liability of Uncertain Cost") discloses a system for reducing the future cost of a liability by projecting an expected death benefit payment and then calculating an annual insurance premium based on that expected benefit, type of policy, and personal and risk characteristics of the insured. This patent also provides for management of the insurer's funds, consisting of premiums and interim cash flow. U.S. Pat. No. 5,126,936 to Champion et al. ("Goal Directed Financial Asset Management System") discloses a system for the management of risk exposure in any asset category. U.S. Pat. No. 5,523,942 to Tyler et al. ("Design Grid for Inputting Insurance and Investment Product Information in a Computer System") discloses a user interface for inputting insurance and investment information into a computer. Also described are methods for calculating behavioral predictions for investments and insurance policies over time based on that information. However, none of these patents discloses a system whereby an individual may purchase a share of an insurance policy offered in syndication by making an online transaction.
Accordingly, there is a need for a more efficient system, preferably implemented on a wide area communication network such as the Internet, whereby a stake in an insurance syndicate may be made widely available as an investment vehicle.